Copom raises Selic rate to 10.75% per year, indicating greater risk of rising inflation (Image: Reuters/Ueslei Marcelino)
O Monetary Policy Committee (Copom) raised the Selic rate by 0.25 percentage points (pp), to 10.75% per year, indicating a greater risk of rising inflation.
“The scenario, marked by resilience in activity, pressures in the labor market, a positive output gap, rising inflation projections and unanchored expectations, demands a more contractionary monetary policy,” the directors said in the statement.
The Committee also highlighted that there is an upward asymmetry in its balance of risks for prospective inflation scenarios.
The decision was in line with market expectations, which were already expecting a resumption of monetary tightening, after the more relaxed tone hawkish of the directors in the latest communications.
Selic at 10.75%: Understand Copom's movement
International
In the statement, Copom reinforced that the external environment remains challenging, due to the inflection point in the economic cycle in the United States — “which raises greater doubts about the pace of deceleration, disinflation and, consequently, the Fed's stance.”
Central banks in major economies remain determined to promote the convergence of inflation rates towards targets in an environment marked by pressures in labor markets.
“The Committee assesses that the external scenario, also marked by less synchrony in monetary policy cycles between countries, continues to require caution on the part of emerging countries,” they say.
Brazilian economy
Regarding the domestic scenario, the directors emphasize that the set of economic activity and labor market indicators has shown greater dynamism than expected, which led to a reassessment of the gap towards the positive field.
As for the full IPCA, as well as measures of underlying inflation, they assess that they were above the target in the most recent releases.
The Committee also assesses that there is an upward asymmetry in its balance of risks for prospective inflation scenarios.
Among the upside risks to the inflationary scenario and expectations, they highlight:
- unanchoring of inflation expectations for a longer period;
- greater resilience in services inflation than projected due to a tighter output gap; and
- combination of external and internal economic policies that have an inflationary impact, for example, through a persistently more depreciated exchange rate.
Where is Selic going?
The Committee says that the pace of future adjustments in the Selic rate and the total magnitude of the cycle now underway are open to question.
The next steps will be dictated by the “firm commitment to convergence of inflation to the target and will depend on the evolution of inflation dynamics, especially the components most sensitive to economic activity and monetary policy, inflation projections, inflation expectations, the output gap and the balance of risks”.
Unanimous decision
According to the statement, the Central Bank directors reached a consensus and the decision was again unanimous.
Both the current president of the BC, Neto Fieldsas for the future, Gabriel Galipoloopted for a 0.25 pp increase in interest rates. Ailton Santos, Carolina Barros, Diogo Guillen, Otávio Damaso, Paulo Picchetti, Renato Gomes and Rodrigo Teixeira supported the vote.
See the Copom statement